Windows and devices take a hit in Microsoft’s Q4 earnings, but Xbox is mostly up

Microsoft just posted the fourth and final quarter of its 2023 fiscal financial results. The software maker made $56.2 billion in revenue and a net income of $20.1 billion during Q4. Revenue is up 8 percent, and net income has increased by 20 percent. As expected, Windows and devices revenue has been hit hard again this quarter, but Xbox has rebounded somewhat — at least on the content side. Microsoft’s cloud, office, and server businesses continue to make up for a weaker PC market.

Microsoft’s entire fiscal 2023 hasn’t been great for its Windows and devices revenue compared to fiscal 2022. Windows OEM revenue, the price that PC manufacturers pay Microsoft to put Windows on laptops and PCs, has dropped significantly for the entire fiscal year, or four quarters in a row. In Q4, that means Windows OEM revenue fell by 12 percent, which Microsoft says was “primarily driven by the PC market.”

Research firm IDC blames “macroeconomic headwinds, weak demand from both the consumer and commercial sectors, and a shift in IT budgets” for six consecutive quarters of contraction in the PC market. Lower shipments of laptops and PCs have also hit Microsoft’s devices revenues again. Devices at Microsoft includes HoloLens, PC accessories, and Surface devices. Overall devices revenue has dropped by 20 percent in Q4.

Microsoft also makes Xbox devices, which are separated from its other hardware. Xbox hardware revenue has dropped 13 percent in Q4, so it’s likely that Microsoft continues to suffer with hardware supplies and softer demand for its Xbox Series S / X consoles.

Xbox content and services revenue, which includes Xbox Game Pass, is up five percent, though. Overall gaming revenue is also up just one percent. This suggests that Xbox Game Pass has grown year over year, despite Microsoft still not providing updated subscriber numbers.

Microsoft said Xbox Game Pass had grown to 25 million subscribers in January 2022, but we haven’t had an update for more than 18 months now. Microsoft Gaming CEO Phil Spencer did reveal in October that Xbox Game Pass growth had stalled on the console side of the service, though. Microsoft has been making a bigger effort with PC Game Pass growth instead, with PC Game Pass launching in 40 new markets earlier this year.

Microsoft also recently adjusted its Xbox Game Pass pricing. Xbox Game Pass Ultimate has moved from $14.99 per month to $16.99 (€14.99 / £12.99). The base Xbox Game Pass for Console pricing has also been increased from $9.99 a month to $10.99 (€10.99 / £8.99). Microsoft has not changed its PC Game Pass pricing, though.

Microsoft also announced plans to end its Xbox Game Pass Friends & Family plan in August. The plan had spread to eight countries, but Microsoft acknowledged this was a “preview program” all along and will cease to exist on August 15th. There’s no sign if it will return at a later date.

A new Xbox Game Pass Core subscription will be available in September priced at $9.99 per month to replace Xbox Live Gold. It features multiplayer online gaming and a new small catalog of more than 25 games — including Gears 5, Forza Horizon 4, and Psychonauts 2.

Microsoft had been hoping to have finalized its Activision Blizzard acquisition by the end of its Q4 fiscal 2023, but the deal deadline has been extended until October 18th. Microsoft and Activision agreed to extend the deadline to allow both companies to negotiate with UK regulators on a change to the transaction that will allow the deal to close. The UK’s Competition and Markets Authority (CMA) blocked the deal over cloud concerns in April, just a day after Microsoft’s Q3 2023 earnings report. The EU went on to approve the deal with a key cloud gaming remedy in place.

As always, it’s Microsoft cloud businesses that are really driving the company’s revenue. Microsoft 365 Consumer subscribers has grown to 67 million, up from the 65.4 million reported in the previous quarter. Microsoft launched a new $1.99 a month Microsoft 365 Basic subscription earlier this year, which is clearly having some impact on numbers.

Office commercial products and cloud services revenue also grew by 12 percent year over year, thanks to Office 365 Commercial revenue growth of 15 percent. Microsoft’s intelligent cloud business saw revenue of $24 billion this quarter, up 15 percent. A big part of that was down to Azure and other cloud services revenue growing by 26 percent this quarter, driven by what Microsoft describes as strong demand for its consumption-based services.